1. Yes its possible

2. Yes there could be better ways, especially considering the tax aspects

pakearth wrote:

Has anyone ever worked with Inception Wealth Group or MODE SMSF? They’re setting up an SMSF for us, but I’m not sure if I want to proceed with it yet.

Are they licenced? i.e. do they have an AFSL?

If not then stay clear, and report them to ASIC.

Did they approach you or did you approach them? I would never use a company that approached me, especially about financial matters.

If a trust ‘gets’ a loan it will be the trustee that borrows. Where there is a company as trustee the company will be the borrower with the directors as guarantors of the loan.

If the directors set up Company B for the next purchase (whether it acts as trustee or not) it will borrow. The debts of Company A are no able to be counted as debts of Company B as they are 2 different legal persons.

But where Individual A has guaranteed the first loan this guarantee could be taken into account, for serviceability purposes. But some lenders will disregard this where Company A and the trust it is trustee of, are ‘self sufficient’.

Seek legal advice on this beforehand as there are many issues.

The issue is likely to be that the borrower of the loan is going to be different to the mortgagor of the property.

e.g. Trust Co Pty Ltd owns the property, as trustee, but Homer needs to be the borrower so he can claim the interest on the loan that he has used to acquire units in the trust.

The owner Trust Co Pty Ltd is the mortgagor. Homer cannot give a mortgage as he doesn’t own the property.

Trust Co Pty Ltd would normally be the borrower, but Homer wants to claim the interest so he needs to be the borrower. If the loan is refinanced and Trust Co Pty Ltd becomes the borrower no interest would be deductible to anyway.

But there is a simple way around this and that is to seek legal advice and have Trust Co Pty Ltd borrow and onlend to Homer to pay out the previous loan. All done simultaneously on settlement of the refinance.

Another ‘issue’ is if the word ‘hybrid’ is used in the name of the trust. It will just make the lending hit a brick wall without further consideration with some lenders.

harder to finance means harder to sell generally.

Oh i just realised that first post was written in 2010 so 14 years ago!

Borrow to pay it is one option.

Did you do some planning before purchase so you could minimise land tax?

If you sell you will likely pay CGT and will loose future capital growth. You would also be up for agents fees and if you later buy something else more stamp duty.

Do you guestimate they will be growing more than they are costing you? if so it might be worth holding. ALso have to factor in the opportunity cost of having the money tied it, the extra non-deductible interest you are incurring as well as the negative cash flow

There should be no need for a private ruling for a question like this. basic tax advice should be enough.

tobymorrison42 wrote:

As you will read in my linked screenshot, investing through a trust does not seperate you from debt in your personal name or other trusts that you are associated with. This is straight from the mouth of CBA and multiple accountants and brokers that I have discussed this with. If anyone’s experience differs, please let me know as I’m very curious to get to the bottom of this as I’ve heard different truths from many different people.

I am a trust lawyer and mortgage broker of 24 years and you have misunderstood a few things here.
A trust cannot borrow as its not a legal entity, just a relationship. It is the trustee that borrows. If hte trustee is a company the loan will be taken out by the company with the director giving a personal guarantee. that means it is not a debt of the individuals, it is a debt of the company in its capacity as trustee and personally.

If a 2nd company then borrows, in its own right or as trustee, the debts of the first company are not debts on the new company so they wouldn’t be taken into account. But the company can only borrow with the benefit of the personal guarantee which will mean that the loan guarantees for Company1 is taken into account, but there are several lenders out there that will disregard loans guaranteed, for the purposes of serviceability, if certain conditions are met.

CBA is one of these lenders too.